April, 2012:

With Hong Kong’s air quality so bad and the ships using our port significant emitter of a key pollutant, sulphur dioxide, our government should be leading the push for clean fuel. Hong Kong is late to the party, though lawmakers have recently approved a rebate to shipping companies operating vessels that are already voluntarily burning low-sulphur fuel. The amount is substantial, but firms that are not participating will not be covered, and high oil prices do not guarantee continuing compliance.The voluntary approach is no way to go about making our air safe. Only laws will assure that. Our worsening roadside air pollution plainly shows the failings of a strategy that mixes incentives with voluntary action for the companies responsible for the biggest polluters – power stations and old diesel buses and trucks. Requiring that electricity producers no longer burn coal and that new vehicles be purchased would, at a stroke, make levels acceptable. As studies have shown, our health is suffering.

Most container ships do not burn high-quality marine diesel and are instead powered by staggeringly polluting bunker fuel. With a sulphur content of between 2.8 and 4.5 per cent, a single vessel using it can in an hour produce as much pollution as 350,000 cars. Research by the think tank Civic Exchange estimates that 3.8 million people are at risk of exposure to excessive levels of emissions of pollutants from shipping and the port at Kwai Chung. Mindful of an international push and laws elsewhere, 17 shipping companies launched the two-year Fair Winds Charter at the start of last year to voluntarily switch to fuel with a sulphur content of 0.5 per cent or less while berthed here.

Authorities have to put the rebate in place promptly, but that has to be only the start. Pressing all vessels in our waters to use clean fuel is just as important. Ultimately, though, as with increasing numbers of ports elsewhere, they will have to turn to laws.

As OOCL London entered the English Channel in early February, the 323-meter vessel owned by Hong Kong’s biggest container line was forced to switch from burning the black sludge known as bunker oil to less polluting fuel. That wasn’t the case in the ship’s home harbor last week.

Vessels calling at North Sea and Baltic ports must use fuel containing no more than 1 percent sulfur to cut emissions estimated to cause at least 60,000 deaths a year worldwide. Ships steaming into Hong Kong are free to burn less costly 3.5 percent sulfur oil, which means they account for a growing share of the city’s air pollution and threaten the health of more than 25 million people in China’s Pearl River Delta.

April 5 (Bloomberg) — Ships burning black sludge known as bunker oil are under rising scrutiny in Hong Kong as the city seeks to fix a mounting smog problem at home and meet the demands of leaders in Beijing to deliver cleaner air. Vessels calling at North Sea and Baltic ports must use fuel containing no more than 1 percent sulfur to cut emissions estimated to cause at least 60,000 deaths a year worldwide. Ships steaming into Hong Kong are free to burn less costly 3.5 percent sulfur oil. Bloomberg’s Paul Allen reports. (Source: Bloomberg)

Emissions from Orient Overseas International Ltd. (316), A.P. Moeller-Maersk A/S (MAERSKB) and their rivals are under rising scrutiny as Hong Kong seeks to fix a mounting smog problem at home and meet the demands of leaders in Beijing to deliver cleaner air. Tightening marine fuel standards in the delta will add to costs for shipping lines, already squeezed by record energy prices and too many vessels competing for cargos.

“The central government has realized the export processing of shower flip-flops is not necessarily the way to conquer the world, but it is a good way to trash your environment,” said Mike Kilburn, head of environmental strategy at Civic Exchange, a Hong Kong-based research body advising on policy. China “wants to move away from a purely economic-driven model to recognize quality of life as well.”

More ‘Livable’

The government in Beijing in 2008 set a target to create more “livable” cities in the Pearl River Delta, a region encompassing Hong Kong, Shenzhen and Guangzhou. Those three cities together processed the equivalent of about 60 million standard 20-foot cargo boxes in 2010, double the volume ofShanghai, the world’s biggest container port, according to a November report by CLSA Asia-Pacific Markets. Asia has the highest concentration of people at risk from ship pollution because of the combination of big ports, trade-centered economies and urban concentration, it said.

So-called Emission Control Areasare either in place or will be for almost the entire U.S. coast by August, as well as ports in the English Channel, North and Baltic Seas. Ships entering those zones must use 1 percent sulfur fuel now and will have to switch to 0.1 percent by 2015. Under International Maritime Organization rules, all ocean-going vessels will have to burn 0.5 sulfur at sea by 2020.

One-Time Switch

Hong Kong is “fully determined” to tighten standards “as soon as possible,” said Pearl Ng, a spokeswoman for the Environmental Protection Department. Bringing all of the Pearl River Delta under an ECA is a longer term aim that requires a submission to the IMO by the central government, she said.

The government is now working out how to mitigate costs from fuel switching, she said. Moving to a mandatory 0.1 percent cap for vessels at berth as well as all local craft would maximize the benefits for clean air while creating a big enough market for the cleaner fuel that costs would be reduced.

The total operating loss of 22 container liners surveyed by Alphaliner, a shipping data provider, reached $5.6 billion last year, from operating earnings of $12.1 billion in 2010.

Bunker fuel in Singapore, the largest refueling port, has averaged $732.88 a metric ton since Jan. 1, its highest start for a year since Bloomberg began tracking prices in 2002. The price of 0.5 percent gasoil in Singapore averaged $863.72 a ton this year, also a record. A 10-year-old, 5,000-unit container ship sailing at 22 knots consumes 24 tons of fuel a day, according to Morgan Stanley.

Blending Costs

Blending higher quality fuels with bunker to meet the current 3.5 percent IMO sulfur limit adds about $4 to $5 a ton, Basheer Ahmed Sayeed, chief executive officer of fuel trader Chemoil Adani (Singapore) Pte., said in an interview last month. Bunker fuel prices will continue to rise as sulfur specifications tighten in coming years, he said.

With a cargo capacity of 99,636 deadweight tons and about the length of three football fields, OOCL Londonholds as many as 8,063 cargo boxes, data compiled by Bloomberg show. There were 63 container ships able to carry more than 5,000 units, in Pearl River waters on April 3, the data show.

At those kinds of concentrations, the ships’ enginesconsume energy at rates similar to the biggest power stations, said Simon Ng, a researcher into marine pollution at Hong Kong University of Science and Technology. Unlike power stations, their emissions aren’t regulated beyond the IMO’s sulfur-content cap of 3.5 percent — 3,500 times higher than the auto diesel sold in Hong Kong.

Mark Wong, a Hong Kong-based spokesman for Orient Overseas, declined to comment for this article.

Still Polluting

When docked, vessels need to keep their power systems running. Under a voluntary charter that expires at the end of this year, shipping lines representing more than 80 percent of container trade in Hong Kong agreed to burn fuel with a 0.5 percent sulfur content or less when their ships were at berth or anchored. That’s still 500 times higher than auto diesel.

Hong Kong has set aside $33 million over three years to give ships burning 0.5 percent fuel a 50 percent discount on port charges.

While such voluntary efforts help cut emissions at berth, they don’t address pollution caused by ships on their approach or departure from Hong Kong. As regulation of power stations and vehicle emissions takes effect, ships’ contribution to the total is growing along with global trade volumes, according to Civic Exchange.

Soot from burning marine fuel accounted for 31 percent of respirable particles in Hong Kong’s air in 2008, according to the city’s government. The World Health Organization estimates 9 percent of lung cancers worldwide are linked to the tiny particles that can penetrate deep into the airways.

Ship pollution in Hong Kong made up 23 percent of sulfur dioxide and 27 percent of nitrogen oxides, gases whose health impact is greater than earlier thought, based on new data, said Hak-kan Lai, assistant professor in the school of public health at Hong Kong University.

‘Delay, Denial’

Worldwide, premature deaths linked to marine emissions may have risen from 60,000 five years ago to about 84,000 today, according to a 2007 study led by James Corbett, a professor at the School of Marine Science and Policy in Delaware University.

Policy changes have been hindered by a “lack of political will” together with “delay tactics and denial,” Lai said.

The only question for shipping companies now is when tighter fuel standards are introduced.

“Everyone wants to be cleaner, but they want regulation,” said Veronica Booth, who has been leading Civic Exchange’s harbor policy work since 2008. “The second there’s regulation, they can pass on the cost to their customers.”

April 5 (Bloomberg) — As OOCL London entered the English Channel in early February, the 323-meter vessel owned by Hong Kong’s biggest container line was forced to switch from burning the black sludge known as bunker oil to less polluting fuel. That wasn’t the case in the ship’s home harbor last week. Vessels calling at North Sea and Baltic ports must use fuel containing no more than 1 percent sulfur to cut emissions estimated to cause at least 60,000 deaths a year worldwide. Ships steaming into Hong Kong are free to burn less costly 3.5 percent sulfur oil, which means they account for a growing share of the city’s air pollution and threaten the health of more than 25 million people in China’s Pearl River Delta. (Source: Bloomberg)

Bloomberg News

Ship Smog Seen as Next Target to Clear Hong Kong Skies

As OOCL London entered the English Channel in early February, the 323-meter vessel owned by Hong Kong’s biggest container line was forced to switch from burning the black sludge known as bunker oil to less polluting fuel. That wasn’t the case in the ship’s home harbor last week.

Vessels calling at North Sea and Baltic ports must use fuel containing no more than 1 percent sulfur to cut emissions estimated to cause at least 60,000 deaths a year worldwide. Ships steaming into Hong Kong are free to burn less costly 3.5 percent sulfur oil, which means they account for a growing share of the city’s air pollution and threaten the health of more than 25 million people in China’s Pearl River Delta.

Emissions from Orient Overseas International Ltd. (316), A.P. Moeller-Maersk A/S (MAERSKB) and their rivals are under rising scrutiny as Hong Kong seeks to fix a mounting smog problem at home and meet the demands of leaders in Beijing to deliver cleaner air. Tightening marine fuel standards in the delta will add to costs for shipping lines, already squeezed by record energy prices and too many vessels competing for cargos.

“The central government has realized the export processing of shower flip-flops is not necessarily the way to conquer the world, but it is a good way to trash your environment,” said Mike Kilburn, head of environmental strategy at Civic Exchange, a Hong Kong-based research body advising on policy. China “wants to move away from a purely economic-driven model to recognize quality of life as well.”

More ‘Livable’

The government in Beijing in 2008 set a target to create more “livable” cities in the Pearl River Delta, a region encompassing Hong Kong, Shenzhen and Guangzhou. Those three cities together processed the equivalent of about 60 million standard 20-foot cargo boxes in 2010, double the volume of Shanghai, the world’s biggest container port, according to a November report by CLSA Asia-Pacific Markets. Asia has the highest concentration of people at risk from ship pollution because of the combination of big ports, trade-centered economies and urban concentration, it said.

So-called Emission Control Areas are either in place or will be for almost the entire U.S. coast by August, as well as ports in the English Channel, North and Baltic Seas. Ships entering those zones must use 1 percent sulfur fuel now and will have to switch to 0.1 percent by 2015. Under International Maritime Organization rules, all ocean-going vessels will have to burn 0.5 sulfur at sea by 2020.

One-Time Switch

Hong Kong is “fully determined” to tighten standards “as soon as possible,” said Pearl Ng, a spokeswoman for the Environmental Protection Department. Bringing all of the Pearl River Delta under an ECA is a longer term aim that requires a submission to the IMO by the central government, she said.

The government is now working out how to mitigate costs from fuel switching, she said. Moving to a mandatory 0.1 percent cap for vessels at berth as well as all local craft would maximize the benefits for clean air while creating a big enough market for the cleaner fuel that costs would be reduced.

The total operating loss of 22 container liners surveyed by Alphaliner, a shipping data provider, reached $5.6 billion last year, from operating earnings of $12.1 billion in 2010.

Bunker fuel in Singapore, the largest refueling port, has averaged $732.88 a metric ton since Jan. 1, its highest start for a year since Bloomberg began tracking prices in 2002. The price of 0.5 percent gasoil in Singapore averaged $863.72 a ton this year, also a record. A 10-year-old, 5,000-unit container ship sailing at 22 knots consumes 24 tons of fuel a day, according to Morgan Stanley.

Blending Costs

Blending higher quality fuels with bunker to meet the current 3.5 percent IMO sulfur limit adds about $4 to $5 a ton, Basheer Ahmed Sayeed, chief executive officer of fuel trader Chemoil Adani (Singapore) Pte., said in an interview last month. Bunker fuel prices will continue to rise as sulfur specifications tighten in coming years, he said.

There is a fervent on-going debate between shipowners and relevant stakeholders about the upcoming low sulphur standards coming in effect January 1st, 2015 in ECAs. Many shipowners feel the new sulphur standards will cause a financial loss on their businesses as they will have to invest in new technologies or turn to more expensive fuels with lower sulphur. They also feel that although they are presented with several alternate solutions (LNG as fuel, scrubbers, biofuels…), this is only a façade and their only true option today is MGO.

One feels, however, that in the midst of this debate centering on money, the real reason IMO implemented this regulation is being forgotten: health risks. There is a very interesting article onacidnews dated from June 2011 about actual figures of the consequences of pollutants from ships’ air emissions. Citing a research conducted by the Danish Centre of Energy, Environment and Health (CEEH), the article claims that air pollutant emissions in the year 2000 caused 49 500 premature deaths in Europe, and was responsible for health damages of around € 22 billion.

These numbers are not stated often enough, and really need to be pushed forward so that everyone understands the reasons behind the MARPOL Annex VI regulations.

However, these numbers must not obscure the difficulties shipowners will face in complying with the sulphur standards. Shipping companies facing financial difficulties in results of the regulations will most likely have to compensate elsewhere (i.e reducing trade routes, layoffs…).

Therefore, a neutral platform uniting all relevant stakeholders is now a necessity. Taking place October 18th 2012 in Riga, this is exactly what MARPOL Annex VI Summit is promising to be.

According to a poll we conducted with shipowners in Northern Europe, almost half of respondents feel there are discrepancies between EU Directives and IMO regulations on sulphur standards in Emission Control Areas for 2015. At the same time, a large majority of these same respondents feel they fully understand the EU Directives.

This shows a clear gap of knowledge among shipowners in regards to sulphur standards set by the EU. Recent communication from the European Union has been pretty clear that standards from the two institutions will be harmonized:

“In October 2008, MARPOL Annex VI was amended, introducing requirements for lower sulphur fuels globally, but also more stringent limits in the Emission Control Areas (ECAs). In order to ensure regulatory consistency, the relevant EU legislation will be aligned with the latest IMO requirements.”

This confusion, complemented with a lack of knowledge on scrubber technologies, LNG infrastructure, and available financial channels, is one of the center points of the upcoming MARPOL Annex VI Summit. Our aim is to provide a neutral platform for shipowners and all stakeholdersinvolved with Sulphur standards in ECA to help the shipping industry face a tough transitional period.

The shipping industry transports 90% of all goods in the world. No global company, regardless of sector, would be successful without the use of ships. Consequently, any major transformation of the maritime sector would cause a ripple effect, from the shipowners all the way down to the companies that manufacture those goods, and the customers who buy them.

In that regard, IMO regulations in Annex VI of MARPOL are increasingly important, if not crucial, to many key stakeholders. Taking effect January 1st, 2015, sulphur emission content will be restricted to 0.1% in ECA. This is an effort from IMO to make the maritime transport sector catch up with air and land sectors when it comes to lowering air emission’s negative impact on the environment.

Because of the vital importance of the maritime industry, we are proud to present the MARPOL Annex VI Summit, taking place May 9-11 2012 in Copenhagen. This first of its kind platform will bring together C-level executives from shipowner companies as well as all the major stakeholders to share their experience, knowledge and challenges in complying with IMO regulations in ECA. You will participate in an exciting program, complete with fascinating case studies, roundtable sessions designed around the most current developments, and interactive panel debates.

Key topics addressed on this year’s agenda:

· • Scrubbers – Is there an infrastructure in place to handle the wastes produced? Will ports be regulated to handle the sludge or will it be an extra charged-for service?

· • How will the increase in demand affect the price of Marine Gas Oil? Are European productions able to supply enough by 2015, or will they be forced to import at extra costs?

· • LNG – Where are infrastructures developed and how will that affect trade routes? How will the industry assess the real costs once demand rises?

· • How are current sulphur disputes resolved, and what parties are involved? What are the consequences if discrepancies rise with 0.1% standards?

At MARPOL Annex VI Summit, you will gain critical insight into all the possibilities for shipowners to meet IMO sulphur requirements in 2015. Our agenda is designed by our ECA Shipowners Committee, and complete with: experience of shipowners who have already turned to LNG as fuel or exhaust gas cleaning systems and their impending results; updates about LNG infrastructure development outside of Norway.

Most importantly, experts from gas producers, academic gurus and researchers, and bunker suppliers will analyze the future outlook of the heavy fuel oil, marine gas oil, and liquefied natural gas market. They will scrutinize the demand and supply reactions to the regulations, and the consequently affected prices these will bear on shipowners’ finances and their freight rates.

Do not miss this extraordinary opportunity to gain critical insights on regulations and the consequential impact it will have on the maritime sector in ECA. I look forward to welcoming you in Copenhagen, May 9-11!